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Explaining Today's Mortgage Rates

Doug Walters
Jul 19 5 minutes read

If you’re planning to buy a home, chances are you're thinking about mortgage rates. Last week, the Federal Reserve announced that it would lift its pause on interest rate hikes, raising rates by 25 basis points (0.25%).

Mortgage rates fluctuate as market conditions shift, and small rate changes can have a huge impact on your financial future. Rates sunk to record-breaking lows in 2020, with 30-year fixed rate mortgages sliding as low as 3% at one point, according to Bankrate. Then in March of 2022, when the Fed began increasing interest rates to curb inflation,  mortgage rates followed. Now, Bankrate reports that today's average 30-year fixed mortgage rate in the U.S. is up to 7.32%. 

So what does the future holds for mortgage rates? Unfortunately, there’s no easy way to answer that question because mortgage rates are notoriously hard to predict.  

But, there’s one thing that’s historically a good indicator of what will happen with rates, and that’s the relationship between the 30-Year Mortgage Rate and the 10-Year Treasury Yield. Here’s a graph showing those two metrics since Freddie Mac started keeping mortgage rate records in 1972:

If you look at the trend line you can see when the Treasury Yield trends up, mortgage rates usually follow suit. Similarly, when the Yield drops, mortgage rates often drop. In fact, the average spread between the two over the last 50 years was just 1.72 percentage points. And while they typically move in sync like this, the gap between the two has remained around 1.72 percentage points for quite some time. But, what’s crucial to notice is that spread is widening far beyond the norm lately (see graph below):

So what’s pushing the spread beyond its typical average? Financial uncertainty seems to be the culprit. Factors like inflation, policy changes and decisions from the Federal Reserve are all influencing mortgage rates and a widening spread.

Why Does This Matter for You?

This may feel overly technical and granular, but here’s why homebuyers like you should understand the spread. It means, based on the normal historical gap between the two, there’s room for mortgage rates to improve today.

And, experts think that’s what lies ahead as long as inflation continues to cool. As Odeta Kushi, Deputy Chief Economist at First American, explains:

“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal . . . However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”

Similarly, an article from Forbes says:

“Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year, barring any unforeseen surprises.”

Bottom Line

Whether you're a first-time home buyer or a current homeowner looking to relocate, keeping on top of what’s happening with mortgage rates can help you choose an optimal time to make your move. And no matter what mortgage rates are doing, there are steps homebuyers can take to find the best rate possible, like improving their credit score, saving for a down payment, and comparing rates from multiple lenders. 

Looking for Your Dream Home? We Can Help

To navigate these changing market conditions, hopeful homebuyers need expert help. If you’re interested in buying a home, contact our team today. We’ll guide you through the process and help you find your dream home.

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